Analysing the interactions between demand side and supply side investment decisions in an oligopolistic electricity market using a stochastic equilibrium model

• Novel stochastic equilibrium model for oligopolistic electricity market • Study investment decisions on both demand and supply sides • Results show supply side price-making boosts demand side self-sufficiency • Market power and self-sufficiency shift generation firms’ investment choices • A case study is done on a stylised Irish electricity system in the year 2030 Electricity consumers worldwide are investing in self-sufficiency technologies like solar photovoltaics and battery storage, often in markets dominated by oligopolistic generating firms that also consider generation investments. Previous models in the literature have not considered investment decisions on both the demand and the supply sides, nor the interactions between them. In this work, we study the interactions between investment decisions on both sides, and we investigate how price-making behaviour on the supply side affects these interactions. We introduce a novel stochastic equilibrium problem to model several players in an oligopolistic electricity market. On the supply side, we consider generating firms that make operational and investment decisions. On the demand side, we consider both industrial and residential consumers. This model enables us to examine how market power, feed-in premiums, and consumer prosumption influence self-sufficiency investments, consumer costs, and generation portfolios. It also allows us to explore how the interactions among these factors affect outcomes such as wholesale prices and carbon emissions. We apply the model to a case study of a stylised Irish electricity system in 2030. Our results demonstrate that price-making on the supply side increases investment in self-sufficiency on the demand side, which in turn reduces carbon emissions and lessens the increase in prices resulting from the presence of market power. We also find that both market power and self-sufficiency alter the investment decisions made by generation firms. Counter-intuitively, we also observe that the absence of a feed-in premium increases investment in solar generation on the demand side.